1943 (9) TMI 7 - HC - Companies Law

Court dismisses appeal against ex parte order for public examination of directors under Companies Act.

Chokkalingam Chettiar Versus Official Liquidator, Nagarathar National Bank

The court dismissed the appeal against the ex parte order for public examination of directors under section 202 of the Companies Act. It held that such ... Winding up – Power to order public examination of promoters, directors, etc. and Appeals from orders Issues:1. Appealability of the ex parte order for public examination of directors under section 202 of the Companies Act.2. Lack of notice requirement for applications under section 196 of the Act.3. Allegation of fraud against directors for allotting shares in exchange for promissory notes.4. Argument on whether such actions constitute fraud or circumvention of Act provisions.5. Liability of a director who resigned before the alleged fraudulent activities took place.Analysis:1. The judgment addressed the appeal against the ex parte order for the public examination of directors of a bank in liquidation. The court considered the appealability of such orders under section 202 of the Companies Act. Despite initial doubts, the court found that the terms of the section were broad enough to encompass the order in question, making it appealable as per Sircar and Sen's interpretation.2. The appellant raised a preliminary objection regarding the lack of notice for the ex parte order. The court noted that there was no specific requirement in the rules for providing notice to directors before such orders under section 196 of the Act could be passed, thereby dismissing this objection.3. The judgment delved into the allegation of fraud against the directors for allotting shares in exchange for promissory notes. The Official Liquidator's application highlighted this issue, implicating the directors, including the appellant. The court analyzed the appellant's involvement in the share allotment process, emphasizing his potential liability based on the evidence presented.4. The court considered whether the actions of the directors, including the appellant, in exchanging shares for promissory notes constituted fraud or merely a circumvention of the Act's provisions. While acknowledging that the act itself might not directly prove fraud, it was deemed contrary to the company's articles of association, suggesting fraudulent behavior and justifying the public examination.5. Lastly, the judgment addressed the appellant's claim of having resigned before the alleged fraudulent activities occurred. The court acknowledged that if the resignation was effective before the events in question, the appellant would not be liable for subsequent actions. It was emphasized that the examination should focus on relevant matters concerning the charges against the appellant.In conclusion, the appeal was dismissed, and the costs were awarded to the Official Liquidator, highlighting the court's decision regarding the appealability of the order, lack of notice requirement, allegations of fraud, and the liability of a resigning director in the context of the company's actions.